Insurance

Lately, insurance has been on my mind a lot. Seems like we use insurance for two reasons: 1) to pay for things we don't expect and can't afford if they happen (e.g. fire in the house) and 2) to obtain privileges for mass-buying.

The second really isn't insurance. Say that you're going to go into the hospital for a procedure (an event near and dear to my back). The procedure "normally" costs $17,000, but since you have good insurance, it will only cost $10,000. Your part will be around $1,000. (yes, this is a real experience, numbers are close). So the $17,000 minus the $10,000 is discounted because of your "group buying" or discount procedures. Your insurance company has negotiated the stay with the hospital.

Why is this insurance? What if you had no insurance and were going to pay out of pocket. Or suppose your insurance company isn't a good negotiator?

The first thing listed above is real insurance. It's to pay for things we don't expect and can't afford. You have a traffic accident. You didn't mean to, that's why they call it an "accident". Otherwise it would be a purpose. You hit someone, they go to the hospital. Can you afford their hospital bill? (see the numbers above). Insurance pays.

But what about the small things? Here's an example I used recently. You go to the grocery store to buy a jar of pickles (and other things). Taking them out of the car at home, you drop the jar of pickles and it shatters. Who pays for the pickles? Well of course, you do. You are effectively self-insured against pickle-loss.

So we all have some degree of self-insurance. And most of us have some degree of other-insurance. What happens when the line blurs? Why do we expect our medical insurance to cover all (or part of all) of our medical costs? Are we just buying a block of medical coverage? We pay a flat fee per month and expect that to cover most of our costs. Sort of like paying $19.95 to AT&T and getting unlimited long distance. Or reduced cost long distance.

So, why all this rambling on insurance? I've recently seen an incident where a company was self-insured and suffered a large loss. Large is in the eye of the beholder. To the individuals who caused the incident, it's 1-2 year's pay. To the company, it's a blip. So who pays for it? No outside insurance company to foot the bill. It's sorta like the jar of pickles. If my 4 year old son had dropped the jar of pickles (my son is much older than 4) it would take several week's allowance for him to pay it back. For me, on the other hand, it wouldn't even be an hour's pay. So I would fit the bill, scold him for his carelessness and move on.

Let's hope that's what happens in the incident I saw. It was a big jar of pickles that got broke.